USD Swaps: Asian pressures drag yields higher

Hawkish noises from Japan and China dragged yields higher this morning with CPI in the US also looming.

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  • Japan and China send hawkish messages

  • SocGen on lively start to the week and CPI

  • New issues


Japan and China send hawkish messages

FX caught the headlines more than fixed income overnight after the BOJ’s Governor Ueda hinted during the weekend at a fairly imminent end to negative interest rates, news that was also accompanied by the release of stronger monetary data by the PBoC. Ueda said that Japan’s inflation rate seems set to rise and added that “if we judge that Japan can achieve its inflation target even after ending negative interest rates, we’ll do so.”


This dragged the yen away from 2023 lows versus the USD, while sending JGB yields higher (by 6bps in 10y), and setting a bearish tone, with 10y UST, Bund and gilt yields 3bps, 2.5bps and 6bps higher respectively. SOFRs are unchanged out to Mar24 following the FOMC preview by Nick Timiraos in Sunday's WSJ (link). 


The soggy start to the week contrasts with the upbeat end to last week and also reflects caution ahead of Wednesday’s US CPI data (forecast +3.6% versus previous +3.2%).


Despite a 3y UST auction this morning curve-steepening was very much in vogue today, with the 2y UST yield -0.6bps at the time of writing, at 4.984%, 5y is +1.4bps at 4.147%, the 10y is +3.2bps at 4.296% and 30y is +4.7bps at 4.385%. In swap spreads the 2y spread is -0.25bps at -11bps, 5y is -0.125bps at -22bps, 10y is -0.125bps at -29.25bps and the 30y is -0.25 at -67.25bps.



SocGen on lively start to week and CPI

Strategists at SocGen today acknowledged what is calls “an unexpectedly lively start to the week,” and took a look at what else might lie in wait in the days ahead. The lively start, it says, “saw JGB yields take off in Asia and the dollar stage a broad-based retreat after… Governor Ueda of the BoJ signalled an imminent change in YCC policy next week.”


“Markets were put on hold earlier this year on BoJ policy until the outcome was known of the annual wage negotiations in March. Now we’re told that the central bank will have the information by December to determine whether wages will keep rising, so three months sooner than would normally be the case? Translated to FX language, it’s a different way of saying we had enough of Yen depreciation. The last resort perhaps before intervention. The words did not miss their effect and caused USD/JPY to snap back below 146.”


“The outlook for a deeper retracement rests not just with BoJ policy but also with US bond yields, the main driver of USD/JPY. Uncertainty over the Fed outlook - one more hike in November or  not? – is frustrating Yen bulls/ dollar bears.”


SocGen noted that the “spike in JGB yields and rebound in Asia/USD are driving USTs and Bunds at market open. For EUR/USD, the question is whether this is enough to turn the tide. If the ECB pauses on Thursday, sellers could step back in again. Technical levels became stretched last week and, instinctively, this skews the balance of risks towards profit-taking in long USD/G10 and USD/EM.”


Finally, SocGen notes that “Independently from the BoJ and PBoC (it warned overnight against betting on yuan depreciation) actions, this will require a friendly dose of US inflation news on Wednesday. After the 11.5% spike in gasoline prices in August, this is no guarantee. SG economists estimate that petrol/transport will nudge up headline CPI by 0.6% mom (3.7% yoy vs 3.6% previously). The core rate is forecast to gain 0.2% (4.4% yoy vs 4.3% previously). In other words, a similar outturn to core PCE, which also rose again in annual terms. The tail risk for bonds could be tied to the behaviour of rents.”


Callables and Formosas

  • NAB sold a $50m 20y NC7 zero coupon callable (non-Formosa). The GMTN matures Sep 2043, is callable once in Sep 2030 and has an estimated IRR of 5.79%. Self-led and announced Sep 11.   


  • SocGen sold a $100m 15y NC2 zero coupon callable (non-Formosa). The EMTN matures Sep 2038, is callable every 3m from Sep 2025 and has an estimated IRR of 5.30%. Lead unconfirmed  and announced Sep 08.   


  • Kommunalbanken sold a $50m 20y NC6 fixed callable (non-Formosa). The EMTN matures Sep 2043, is callable twice in Sep 2029 and Sep 2037, and pays a 5.36% coupon. Lead is DZ and announced Sep 7.   


  • Merrill Lynch sold a $20m 10y NC4 floating rate callable Formosa. The EMTN matures Sep 2033, is callable annually from Sep 2027 and pays 1y SOFR +145bps floored at 0%. Leads are E.Sun and First Commercial, announced Sep 7.


  • JP Morgan sold a $190m 5y floating rate Formosa. The EMTN matures Sep 2028 and pays SOFR +100bps floored at 0%. Leads are Cathay, E.Sun, JPM, Mega International, President, Sinopac and Yuanta. Announced Sep 7.


New issues

  • CADES plans a USD 3y Social bond at around swaps +37bps. Leads are BNPP, CA, DB and JPM. 


  • Energy Development Oman plans a 144A 10y Sukuk via JPM and Standard Chartered.


  • BBVA is close to pricing a perpetual NC6y bond at around 9.625% via Barclays, BBVA, BofA, HSBC, MS and SocGen.


  • Santos plans a 10y 144A bond at around USTs +300bps via Citi, Deutsche, Mizuho and RBC.


  • KEXIM plans to price today a three-tranche bond consisting of 2y at USTs +75bps, a 5y at +105bps and a 10y at +120bps via BofA, Deutsche, Mizuho, Nomura, SocGen and Standard Chartered.   


  • FWD Group has mandated HSBC, JPM, MS, Mizuho and Standard Chartered to lead a 10y, USD 144A bond issue.